India far closer to the end of downgrade cycle: Ramraj Pai, CRISIL Ratings

ET Now|

Dec 06, 2012, 01.52 AM IST

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We expect that for the next four to six months, we will see further downgrades, but the rate of increase in downgrades would bottom out, says Ramraj Pai, CRISIL Ratings

In an interview with ET Now, Ramraj Pai, President, CRISIL Ratings, gives his views on ratings downgrade and some sectors. Excerpts:

ET Now: Do you believe that we have seen some sort of bottoming out or should we expect that more downgrades are in store for corporate India?

Ramraj Pai: The credit ratio has actually fallen all the way from 0.91 to 0.66, which means for every one company that we downgraded, it is a 0.6 upgrade. We expect that for the next four to six months, we will see further downgrades, but the rate of increase in downgrades would bottom out. So I think that we are far closer to the end of the downgrade cycle today than ever before. Maybe in another four to six months we will have further weakening of the credit situation, but the rate of weakening will definitely slow down.

ET Now: Which are sectors that are of most concern to you or would you say that the problem is broad-based?

Ramraj Pai: All the rate-sensitive sectors, capital-intensive sectors, capital goods, steel, real estate, textiles, engineering, infrastructure are the kind of sectors where we are seeing greater stress. It is a broad-based problem, but if you have to look at specific sectors where we are seeing greater pressure, the sectors that I mentioned are really the ones to look out for.

ET Now: What is your view on the banking sector? Most of the brokeragers are of the view that the high interest rate scenario, high inflation and the way the rupee has been moving are going to be very detrimental to the overall banking pack?

Ramraj Pai: Yes, we are seeing that already in the numbers. Non-performing assets have risen to a high of about 3.6%-3.7%. At the end of September, we could see some further pressure on the non-performing asset side. Clearly the credit cost as well as the rising cost of funds is having an impact on the NIMs as well as on the ROAs. All in all, it is a difficult environment. While NPAs have gone up, the proportion of restructured assets is also somewhere in the region of 5.5% to 6%, which is other than the NPA book. So definitely it is a difficult time.

ET Now: In August, you had put out a report saying that the banking sector is going to stress worth something like 50,000 crores. Are you of the view that this number will remain the same or are things looking like that number actually goes up?

Ramraj Pai: In September, we had said that the proportion of restructured assets would be about 3.25 lakh crores and about half of that would be from the electricity distribution company, the Discom restructuring that is being considered and about a lakh and fifty would be coming from other assets. The slippage that would happen from here could be in the region of about 30%-35% of the non-Discom 1,50,000 crores. Rs 50,000 crore is still a reasonable assessment going forward, but we see some incremental stress building up. So I do not think that we are making any significant changes to the incremental NPA levels of 50,000 crores that we had estimated last.